If you’ve been reading my blog for a while you know that I am absolutely convinced that the insurance agency business is beginning a seismic shift of lasting proportions in terms of how carriers deal with agents, how agents are paid, who competes with agents and how agents must do business in the future to survive and thrive. You may choose to think I’m Chicken Little! But that would be a mistake. The very clear evidence is everywhere.
One of the things that is going to happen, and is already happening, is that the way agent’s get paid is changing.
A couple of years ago Travelers personal auto business had shrunk to unacceptable levels. They had to do something to become more competitive. So they introduced a new product that featured, among other things, dramatically lower agent commissions. It was an immediate success. Their competitors duly noted this development.
Insurance companies are increasingly able to predict losses due to increased computing capability. They are increasingly insatiable in terms of growth. They are going to marry this with commission cuts and offer cheaper prices for agents who accept less commission. The capability to sell policies for a fixed, low fee exists. Its just a matter of time.
Carriers are relentlessly focused on cost reduction. This will allow them to make money on higher loss ratios than before. Based on current profit sharing arrangements this means agents will have a harder time making this important source of income in the future.
Competition in the policy selling business is increasing from non-traditional sources. These are all Internet based with, at least theoretically, a lower cost basis. If they can sell for less this will eventually force agents to take less compensation to compete. This is Econ 101.
The upshot from all of this is agents are going to get paid less in the future on balance. But there are some things that can be done to ameliorate this: 1. Insist on being paid more for the growth that insurance companies are increasingly demanding.
Find ways to become more efficient in servicing customers.
Become relentlessly focused on account rounding to increase revenue per relationship (or maintain it).
Become focused on account acquisition more so than account retention.